Market Summary 8.11.25

The Forces Driving Interest Rates Lower – Will They Last?

Interest rate pressures are easing, with the latest U.S. jobs report reinforcing expectations for a sustained downward trend, according to Marcus & Millichap’s August update. While the broader economic landscape remains complex, cooling labor market indicators are fueling optimism that borrowing costs could remain lower for longer. This shift is already reshaping sentiment in capital markets, particularly for sectors where financing costs are a decisive factor in deal viability.

Lower rates are creating tailwinds for multifamily, industrial, and select retail segments. Multifamily investors stand to benefit from compressed financing spreads as affordability challenges in the for-sale housing market continue to funnel households toward rentals. Industrial assets, supported by e-commerce and supply chain investment, maintain strong tenant demand and low vacancy—conditions that could be amplified by cheaper capital. Necessity-driven retail, especially grocery-anchored centers, is also positioned to gain, as stabilized borrowing costs improve underwriting confidence and expand the buyer pool.

However, challenges persist. The office sector remains under pressure, with high vacancy and tepid leasing activity in most markets offsetting potential rate-driven gains. Investors in oversupplied or structurally weak submarkets may find rate relief insufficient to overcome fundamental headwinds. Similarly, discretionary retail continues to lag, with muted leasing momentum despite favorable capital conditions.

For investors, the key is strategic positioning. With inflation moderating and rate expectations stabilizing, capital deployment can increasingly focus on long-term fundamentals rather than short-term rate volatility. Assets in high-demand corridors with durable tenant bases are likely to see renewed competition, particularly as development pipelines shrink and replacement costs rise. For those prepared to act during this transitional phase, the current environment offers a rare opportunity to lock in quality assets ahead of a broader market resurgence.